October 22, 2018 / 4:23 PM / a month ago

Italy's Pop Bari, others make progress on 1.6 bln euro bad loan deal-source

MILAN, Oct 22 (Reuters) - Popolare di Bari and other regional banks, including Popolare di Puglia e Basilicata, are close to receiving the assessment of credit rating agencies on a deal to offload 1.6 billion euros ($1.8 billion) in bad loans, a source familiar with the transaction said.

The deal will help Popolare di Bari cut its heavy problem loan burden by shedding a gross 800 million euros in bad debts.

The source said the banks involved in the sale were expected to transfer their portfolios to a securitisation vehicle which would then issue securities backed by the bad debts by mid-November.

Contacts with potential buyers of the junior and mezzanine notes have already started, the source added.

Regulators and the financial markets view Italian banks’ efforts to reduce impaired loans that piled up during the country’s deep recession as a crucial step towards the sector’s recovery.

But Italy’s new populist government has triggered a sell-off of Italian assets which threatens to slow down the clean-up process by reducing banks’ capital buffers and making bad loan sales more costly for lenders.

The 1.6 billion euro deal will tap a state guarantee scheme introduced by Italy’s previous centre-left government to help banks shed bad debts.

The scheme has recently been renewed until March next year but a spike in risk premiums on Italian assets has made the guarantee that lenders can buy from the state much more expensive.

Popolare di Bari and JPMorgan are the arrangers on the deal. Debt recovery firm Cerved Credit Management will service the portfolios after helping to tidy up the loans’ data in the run-up to the launch of the transaction, another two sources familiar with the deal said.

$1 = 0.8698 euros Reporting by Valentina Za and Giuseppe Fonte. Editing by Mark Bendeich and Jane Merriman

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